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Jeremy Hunt Insists On "Watertight" Resolve As Bank Of England Raises Interest Rates

One Government source blamed the Bank of England’s “incompetence” for not raising interest rates quickly enough

4 min read

Chancellor Jeremy Hunt has backed the Bank of England's decision to raise interest rates to five percent in an effort to tackle inflation. "The lesson from other countries is that if you stick to your guns, you bring inflation down," he said.

The Bank of England raised interest rates by 0.5 per cent to five per cent, the highest since 2008.

The Bank hopes tightening monetary policy – how much it costs to borrow – will blunt inflation and lessen price rises. UK inflation remained at 8.7 per cent in May while core inflation – the change in the price of goods and services – rose by 0.3 per cent from 6.8 per 7.1.

UK inflation is four times higher than the Bank's annual target of 2 per cent. 

Chancellor of the Exchequer Jeremy Hunt backed the latest increase in inflation as if the Bank did not "act now, it will be worse later". 

“High inflation is a destabilising force eating into pay cheques and slowing growth. Core inflation is higher in 14 EU countries and interest rates are rising around the world, but the lesson from other countries is that if you stick to your guns, you bring inflation down," he said. 

“Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don’t act now, it will be worse later”.

Rachel Reeves MP, Labour’s Shadow Chancellor, said familes will be "desperately worried" after the latest hike in interest rates for their finances. 

“They want to know that support will be there if they need it. Instead the Chancellor and Prime Minister are burying their heads in the sand and failing to clean up the mess this Tory government has made," she said.

“Labour’s five-point plan to help ease the Tory mortgage penalty and our Renters’ Charter would provide practical help right now."

“Longer-term, Labour will build a stronger, more secure economy and get it growing again.”

Liberal Democrat leader Ed Davey said home owners are "being treated as collateral damage by Rishi Sunak" after the latest 0.5 per cent increase will "scar family finances for years to come".

“It is heartbreaking that this could lead to people losing their family home through no fault of their own. Rishi Sunak needs to provide targeted support to those hardest hit, instead of cruelly standing by as people worry about keeping a roof over their head,” he added.

Conservative MPs fear soaring mortgage rates – which have been triggered by consecutive interest rate hikes by the Bank – could be the final nail in the coffin for the Tories’ election prospects.

One Government source blamed the Bank of England’s “incompetence” for not raising interest rates quickly enough to tackle rising inflation. They claimed that many colleagues believe this issue could cost the Tory Party at the next election.

Many MPs and advisers in Westminster believe mortgages will come to dominate the national debate and become one of the main priorities. At Prime Minisiter’s Question’s on Wednesday, Labour leader Keir Starmer blamed the Tories for “the mortgage catastrophe” which millions of homeowners are facing.

Confidence in the Bank's ability to control and stem inflation has reached a 20-year low, according to the FT. Ipsos polling found that 34 per cent of respondents were "dissatisfied" or "very dissatisfied" with their performance compared to 21 per cent were satisfied or very satisfied.

Despite the backlash Mark Harper, the Transport Secretary, told Sky News the Government has full confidence in the Bank. “Some people make that criticism, yes, and there was a decision to make at the beginning about whether inflation was transitory or not.”

The Institute for Fiscal Studies, a think tank, said the hikes will hit the disposable income of 1.4million people. Rising interest rates will hit many homeowners who are increasingly leveraged on their mortgage.

A rise in a cost for their mortgage will affect their disposable income and demand in the economy.

Interest rates are projected to rise to six per cent later this year which will lead to thousands more mortgage holders facing bigger repayments when their fixed-term contracts end. This could lead to further strain on renters as landlords will be hit with higher mortgage rates and will likely pass these costs on to tenants.

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